Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-22358 January 29, 1975 PIO BARRETTO SONS, INC., petitioner, vs. COMPAIA MARITIMA, respondent. Vicente del Rosario, E. V. Navarro and E. I. Perez for petitioner. Rafael Dinglasan for respondent.

ESGUERRA, J.: Petition for review on certiorari of the decision of the Court of Appeals in its CA-G.R. No. 23367-R which reverses the judgment of the Court of First Instance of Manila, including its resolution denying the petitioner's motion for reconsideration of the decision. The factual background of the case is as follows: Petitioner as plaintiff filed a complaint for collection of a sum of money against herein respondent, alleging that during the months of October and November, 1941, the defendant (now respondent) purchased on credit and received from the plaintiff (now petitioner), lumber worth P5,300.55; and on December 4, 1941, the defendant-respondent again purchased on credit and received from the plaintiff-petitioner, lumber worth P453.81, thereby incurring a total indebtedness of P6,054.36 with stipulated interest of 12% per annum, plus attorney's fees.

Respondent as defendant filed its answer denying all the material allegations of the complaint and, by way of counterclaim, prayed that plaintiff-petitioner be ordered to pay the sums of P500.00 as expenses of litigation and P1,500.90 as Attorney's fees, plus costs. Plaintiff-petitioner having filed its answer to the counterclaim of defendant-respondent, the case was heard and the trial court rendered judgment in favor of the plaintiff-petitioner, the dispositive portion of which reads as follows: WHEREFORE, judgment is hereby rendered ordering defendant to pay to plaintiff the sum of P6,054.36, with legal interest thereon from the filing of the complaint until fully paid, plus attorney's fees in the amount of P500.00, together with the costs. Both parties appealed to the Court of Appeals, the plaintiff PIO BARRETTO SONS, INC. assigning the following error: The Lower Court erred in holding that the moratorium orders and laws condoned the stipulated interest of 12% per annum on defendant's prewar indebtedness, and in awarding to plaintiff only the legal interest from the filing of the complaint. (pp. 4-5, Brief for the Plaintiff-Appellant) and defendant COMPAIA MARITIMA making four assignment of errors, to wit: I. The Lower Court erred in holding that plaintiff had proven its alleged claims of P5,600.55 and P453.81. II. The Lower Court erred in holding that defendant had not paid plaintiff's alleged claim in the amount of P5,600.55. III. The Lower Court erred in not holding that the complaint states no cause of action against defendant,

and that the alleged cause of action, if any at all, is already barred by the statute of limitation of actions. IV. The Lower Court erred in ordering defendant to pay to plaintiff the sum of P6,054.36 plus legal interest thereon from the filing of the complaint until fully paid, plus attorney's fees in the amount of P500.00 together with the costs. (pp. 1-2, Brief for the DefendantAppellant) The Court of Appeals reversed the judgment of the trial court and ordered the dismissal of the case on the ground that delivery of the lumber by plaintiff-petitioner to defendant-respondent was not duly proved. Petitioner's motion for reconsideration of the decision of the Court of Appeals was denied again on the ground of lack of sufficient showing of a valid delivery of the lumber in question by the Barretto Sons, Inc. to the Compaia Maritima. Hence this petition for review on certiorari. Petitioner maintains that: I. The Court of Appeals erred in creating and raising, motu propio, for the first time a new issue, that of the question of delivery, upon which the Court of Appeals based its decision reversing the judgment of the trial Court. II. The Court of Appeals erred in its conclusion drawn from proven facts, and has decided the case in a way not in accordance with law or with the applicable decisions of this Court, and III. The Court of Appeals erred in that it has so far departed from the accepted and usual course of judicial proceedings. (pp. 1-2, Brief for Petitioner).

Petitioner further asserts that the case having been tried and decided by the trial court on the issue of whether or not there was payment made by respondent Compaia Maritima of the lumber covered by Exhs. "A-1" to "A-6" (invoices of petitioner) and Exh. "B", "B-1 " to "B-4 (the counter-receipts issued by the respondent), it is alone on this issue that the Court of Appeals should have decided the case and not on the issue of whether or not there was delivery of the lumber in question. The principal issue, therefore, before Us is whether or not the Court of Appeals decided the case on a new issue not raised in the pleadings before the lower courts. We rule that the issue of delivery on which the Court of Appeals based its decision reversing that of the trial court is no new issue at all. For delivery and payment in a contract of sale, or for that matter in quasi-contracts, are so interrelated and intertwined with each other that without delivery of the goods there is no corresponding obligation to pay. The two complement each other. Thus, "by the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent." (Art. 1458, 1st par., new Civil Code). The source of this provision of law is Article 1445 of the old Code, which provides: By the contract of purchase and sale one of the contracting parties obligates himself to deliver a determinate thing and the other to pay a certain price therefor in money or in something representing the same. It is clear that the two elements cannot be dissociated, for "the contract of purchase and sale is, essentially, a bilateral contract, as it gives rise to reciprocal obligations; to wit, on the part of the seller, "to deliver a determinate thing, and on the part of the buyer, "to pay a certain price therefor in money or in something

representing it." " (p. 1, Capistrano, The Law of Purchase and Sale). The finding of the Court of Appeals that there was no delivery of the lumber is well founded. As succinctly ruled by said Court: That this is basically an action for lumber allegedly bought, received, and not paid for; now just as a seller, in order to recover, must prove not only that he has sold and delivered and has not been paid, so a buyer in order to be condemned to pay must be shown to have bought, received, and not paid. Of course, it is correct to say as plaintiff says that even if there had been no purchase, provided there had been a delivery, it could recover, not on the sale but on the quasi-contract against unjust enrichment, but whether on sale or on quasi contract, the vital element is delivery; ... nor should it be said that there was no issue at all between the parties as to the fact of delivery; because that issue was present in the pleadings, not only as can be seen in par. 2 of the answer, but also as can be seen from the fact that plaintiff itself on p. 20 of the tsn. Vol. I, asked its own witness, Roman Legarda So, this question: "Q. Was that lumber covered by that invoice duly received and acknowledged by the Compaia Maritima?" and defendant on the other hand spent a good part of its proofs in demonstrating that there had been no delivery, e.g., Vol. II, pp. 132-134; now on the vital point of delivery, it must be remembered that the procedure between the parties as sought to be proved by plaintiff itself thru its witness, Juanito G. Perez, had been as follows:

"A. Whenever the Compaia Maritima orders lumber from our company, the Compaia Maritima issues a purchase order to the Pio Barretto Sons, Inc. When this purchase order is received by the Pio Barretto Sons, Inc., the Pio Barretto Sons, Inc. delivers the lumber, as specified in the purchase order. Upon delivery of this lumber, the lumber is covered by invoice of the Pio Barretto, together with the purchase order of the Compaia Maritima. Now, when the lumber is received by the Compaia Maritima, the Compaia Maritima stamps our invoice for the lumber delivered, and the receiving clerk signs the said invoice for the Compaia Maritima. Now, after the lumber has been delivered, our delivery man brings back to our office and gives the invoice to me, together with the purchase order. Now, at the end of each week, I prepare the Statement of Accounts to be sent the Compaia Maritima, through our collector, and, in turn, the Accounting Department of the Compaia Maritima issues as the kinds of receipts for the invoices, purchase orders, and statements of accounts surrendered to them." tsn. 76-77, Vol. I; stated otherwise, first, there was a purchase order by Maritima; 2ndly, there was an invoice by Barretto; 3rdly, there was a delivery unto Maritima; 4thly, there was a delivery of the purchase order and delivery receipt unto Maritima for checking or revision; and since Maritima would because of that retain the purchase orders and delivery receipts, it would issue in exchange its own counter receipt of said documents; and 5thly, after due verification had been made, Maritima would then pay; this procedure should now be

correlated to the evidence herein presented; now plaintiff has here presented two sets of documents, A to A-6 and B to B-4; the first set consists of a purchase order, together with the invoices or delivery receipts, At to A-6; and the second set consists of counter-receipts evidencing the fact that Maritima had received, with the exception of that in B-4, certain documents, i.e., purchase orders and delivery receipts from Barretto, "para su revision"; if then the documents would be correlated with the testimonies and the procedure outlined by witness Perez, it will result that as to A to A-6, plaintiff, according to it, had already complied with the purchase order, the sale, and delivery, but that it had not submitted all these to Maritima "para su revision" while as to B to B-4, it had according to it, complied with purchase order (except as to B-4), sale, delivery, and submission "para su revision", but the same had not been as yet checked and verified by Maritima; the question is, has this proof demonstrated plaintiff's cause of action, pursuant to the very procedure by it outlined in its evidence to have been followed between the parties in the course of their commercial transactions but how could that be when precisely because of that practice, it gave unto Maritima the right to first verify; and there is no showing that had been verified; but let it not be here said that just because Maritima had not yet verified, plaintiff should not be permitted to recover, for that practice must give way to the truth, as plaintiff contends, that if it had after all proved delivery, defendant must pay; but has plaintiff proved delivery under the evidence? According to what has been paid, plaintiff had, according to it, submitted its documents in B to B-4 for revision; this means to say that it had in its possession and given unto Maritima purchase orders, and delivery receipts, but does this mean that it had proved delivery? Can delivery be proved by the fact that one had in his possession what one had

believed to be a delivery receipt and submitted that for verification, without any actual proof of delivery of the article? If that were the case, a litigant would be excused from proving the element most vital to show his cause of action; and a Court of Justice must have to rely on the presumption that just because one had in his possession a "delivery receipt", one had already delivered; but the vice of this argument is that it altogether parts from the basis that the "delivery receipt" thus possessed and surrendered was a genuine delivery receipt, evidencing the fact that buyer had indeed received; but here, there absolutely is no proof of that; what this Court has only seen in the evidence nearest to the required proof is the stamp of Maritima on A-1 to A-6; for as this Court has said, the supposed admission by defendant witness Narvaez that the lumber therein annotated had been "delivered" was clearly and unfortunately, one that could not, to be fair to the witness, have been correctly meant to have by him been made, for he was "purchasing agent" only and could not be qualified at all to declare if what he had authorized to be purchased had been thereafter delivered, and the witness had in fact insisted against such alleged delivery to "Posadas", and witness had all the time insisted that only one "J. Leoncio", could receive, and this clarification is indisputably fortified by the very evidence of plaintiff, consisting in the purchase order Exh. A, wherein is annotated: "Not valid unless invoices are receipted and signed by: J. LEONCIO"; which name, "J. Leoncio" had been written precisely by said witness and this must mean that the signature of "Posadas" in A-1 to A-6 by the evidence of plaintiff itself, has been shown to have been unauthorized; and going to the stamp of Maritima on A-1 to A-6, this had

to be correlated to the fact that Narvaez has testified that: This is our own stamp, but we did not authorize Mr. Posadas to sign for any lumber received. tsn. 134, Vol. II; nor has in fact, in any part of the evidence been shown any proof as even to show the authenticity of said signature "Posadas"; or that said "Posadas" had actually received said lumber; to prove at least that the lumber had been deposited in the compound of Maritima by that "Posadas", for if there had been such proof in the record, if plaintiff had shown evidence of that actual delivery of the lumber into the possession of Maritima, then it would have been the obligation of this Court under the law of quasi-contracts, to grant Barretto its prayer for the value of that; but no, what Barrette has here presented as witnesses were first Roman Legarda So, manager of Barretto, who admitted in cross that: Q. With respect to Exhibits A-1 to A-5, you did not have any personal intervention or participation in the preparation of these documents? A. No, sir, I did not have any participation or intervention. Q. You did not have any personal intervention in the alleged deliveries of these number to the Compaia Maritima? A. - No, sir, I did not have. A. As a matter of fact, you do not know who put these rubber stamps here and signed at the bottom of these Exhibits A, A-1 to A- 5?

Q. No, sir, I do not know. tsn. 57-58, Vol. I; and then Juanita G. Perez, assistant cashier of Barretto who admitted in cross that: Q. So, you do not know of your own personal knowledge the circumstances or the manner in which these Exhibits A-1 to A-5 were stamped. You do not know of your own personal knowledge? A. Well, when it comes to stamping, I do not have any knowledge," tsn. 35, Vol. I; under such a status of plaintiffs own proofs, how could it be said that plaintiff had proved its case? And how would it be correctly insisted against this Court that it had disregarded Lower Court's findings contrary to the existing jurisprudence when there was no issue of credibility presented to this Court on which it indeed would have been bound to rely as a rule upon Lower Court's determination; but what had been before this Court was a simple issue of preponderance and it had to make its conclusions based on the documents themselves presented by plaintiff it is because of these that this Court is impelled to reiterate that it should rule as it had ruled previously, for litigations can not be determined by possibly correct suppositions, deductions or even presumptions, with no basis in the evidence, for the truth must have to be determined by the hard rules of proof. (pp. 1-7, CA Resolution dated January 8, 1964). "An examination of said receipts would reveal that they were counter-receipts issued by Cia. Maritima unto Pio Barretto certifying to the fact of having received from Pio Barretto, certain statements, "para su revision", which can only mean not an

admission of having received the lumber but only an admission of having received certain statements on claims for lumber allegedly delivered; ... that plaintiff has the duty to prove its affirmative allegations here of delivery to and failure of defendant to pay, ... otherwise, the meaning would be that the sending of a statement of account would be an evidence of the admission thereof which it surely is not. (p. 6, CA Decision dated November 18, 1963; p. 27, ROA). We concur in the conclusion of the satisfactorily prove accordance with the foregoing observations and find that the Court of Appeals that plaintiff did not delivery of the lumber in question is in facts and the law.

WHEREFORE, the judgment appealed from is hereby affirmed without pronouncement as to costs. SO ORDERED. Castro (Chairman), Teehankee, Makasiar and Muoz Palma, JJ., concur.

QUIROGA vs. PARSONS HARDWARE Co., 38 Phil. 501, No. 11491, August 23, 1918 ANDRES QUIROGA, plaintiff-appellant, vs. PARSONS HARDWARE CO., defendant-appellee. Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. Crossfield & O'Brien for appellee. AVANCEA, J.: On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions: (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment. (C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons. (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given. (F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds. ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group.

ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval. ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds. In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or

before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of

falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in

the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement. In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will. For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. The judgment appealed from is affirmed, with costs against the appellant. So ordered. Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 71122 March 25, 1988 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ARNOLDUS CARPENTRY SHOP, INC. and COURT OF TAX APPEALS, respondents. The Solicitor General for petitioner. Generoso Jacinto for respondents.

CORTES, J.: Assailed in this petition is the decision of the Court of Tax Appeals in CTA case No. 3357 entitled "ARNOLDUS CARPENTRY SHOP, INC. v. COMMISSIONER OF INTERNAL REVENUE." The facts are simple. Arnoldus Carpentry Shop, Inc. (private respondent herein) is a domestic corporation which has been in existence since 1960. It has for its secondary purpose the "preparing, processing, buying, selling, exporting, importing, manufacturing, trading and dealing in cabinet shop products, wood and metal home and office furniture, cabinets, doors, windows, etc., including their component parts and materials, of any and all nature and description" (Rollo, pp. 160-161). These furniture, cabinets and other woodwork were sold locally and exported abroad. For this business venture, private respondent kept samples or models of its woodwork on display from where its customers may refer to when placing their orders.

Sometime in March 1979, the examiners of the petitioner Commissioner of Internal Revenue conducted an investigation of the business tax liabilities of private respondent pursuant to Letter of Authority No. 08307 NA dated November 23, 1978. As per the examination, the total gross sales of private respondent for the year 1977 from both its local and foreign dealings amounted to P5,162,787.59 (Rollo. p. 60). From this amount, private respondent reported in its quarterly percentage tax returns P2,471,981.62 for its gross local sales. The balance of P2,690,805.97, which is 52% of the total gross sales, was considered as its gross export sales (CTA Decision, p. 12). Based on such an examination, BIR examiners Honesto A. Vergel de Dios and Voltaire Trinidad made a report to the Commissioner classifying private respondent as an "other independent contractor" under Sec. 205 (16) [now Sec. 169 (q)] of the Tax Code. The relevant portion of the report reads: Examination of the records show that per purchase orders, which are hereby attached, of the taxpayer's customers during the period under review, subject corporation should be considered a contractor and not a manufacturer. The corporation renders service in the course of an independent occupation representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished, (Luzon Stevedoring Co. v. Trinidad, 43 Phil. 803). Hence, in the computation of the percentage tax, the 3% contractor's tax should be imposed instead of the 7% manufacturer's tax. [Rollo, p. 591 (Emphasis supplied.) xxx xxx xxx As a result thereof, the examiners assessed private respondent for deficiency tax in the amount of EIGHTY EIGHT THOUSAND NINE HUNDRED SEVENTY TWO PESOS AND TWENTY THREE CENTAVOS ( P88,972.23 ). Later, on January 31, 1981, private respondent received a letter/notice of tax deficiency assessment inclusive of charges and interest for the year 1977 in the amount of ONE HUNDRED EIGHT THOUSAND SEVEN HUNDRED TWENTY PESOS AND NINETY TWO CENTAVOS ( P 108,720.92 ). This tax deficiency was a consequence of the 3% tax imposed on private respondent's gross export sales which, in turn, resulted

from the examiners' finding that categorized private respondent as a contractor (CTA decision, p.2). Against this assessment, private respondent filed on February 19, 1981 a protest with the petitioner Commissioner of Internal Revenue. In the protest letter, private respondent's manager maintained that the carpentry shop is a manufacturer and therefor entitled to tax exemption on its gross export sales under Section 202 (e) of the National Internal Revenue Code. He explained that it was the 7% tax exemption on export sales which prompted private respondent to exploit the foreign market which resulted in the increase of its foreign sales to at least 52% of its total gross sales in 1977 (CTA decision, pp. 1213). On June 23, 1981, private respondent received the final decision of the petitioner stating: It is the stand of this Office that you are considered a contractor an not a manufacturer. Records show that you manufacture woodworks only upon previous order from supposed manufacturers and only in accordance with the latter's own design, model number, color, etc. [Rollo p. 64] (Emphasis supplied.) On July 22, 1981, private respondent appealed to the Court of Tax Appeals alleging that the decision of the Commissioner was contrary to law and the facts of the case. On April 22, 1985, respondent Court of Tax Appeals rendered the questioned decision holding that private respondent was a manufacturer thereby reversing the decision of the petitioner. Hence, this petition for review wherein petitioner raises the sole issue of. Whether or not the Court of Tax Appeals erred in holding that private respondent is a manufacturer and not a contractor and therefore not liable for the amount of P108,720.92, as deficiency contractor's tax, inclusive of surcharge and interest, for the year 1977. The petition is without merit.

1. Private respondent is a "manufacturer" as defined in the Tax Code and not a "contractor" under Section 205(e) of the Tax Code as petitioner would have this Court decide. (a) Section 205 (16) [now Sec. 170 (q)] of the Tax Code defines "independent contractors" as: ... persons (juridical and natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. (Emphasis supplied.) Private respondent's business does not fall under this definition. Petitioner contends that the fact that private respondent "designs and makes samples or models that are 'displayed' or presented or 'submitted' to prospective buyers who 'might choose' therefrom" signifies that what private respondent is selling is a kind of service its shop is capable of rendering in terms of woodwork skills and craftsmanship (Brief for Petitioner, p. 6). He further stresses the point that if there are no orders placed for goods as represented by the sample or model, the shop does not produce anything; on the other hand, if there are orders placed, the shop goes into fall production to fill up the quantity ordered (Petitioner's Brief, p. 7). The facts of the case do not support petitioner's claim. Petitioner is ignoring the fact that private respondent sells goods which it keeps in stock and not services. As the respondent Tax Court had found: xxx xxx xxx Petitioner [private respondent herein] claims, and the records bear petitioner out, that it had a ready stock of its shop products for sale to its foreign and local buyers. As a matter of fact, the purchase orders from its foreign buyers showed that they ordered by referring to the models designated by petitioner. Even purchases by local buyers for television cabinets (Exhs. '2 to13', pp. 1-13, BIR records) were by orders for existing

models except only for some adjustments in sizes and accessories utilized. With regard to the television cabinets, petitioner presented three witnesses its bookkeeper, production manager and manager who testified that samples of television cabinets were designed and made by petitioner, from which models the television companies such as Hitachi National and others might choose, then specified whatever innovations they desired. If found to be saleable, some television cabinets were manufactured for display and sold to the general public. These cabinets were not exported but only sold locally. (t.s.n., pp. 2235, February 18,1982; t.s.n., pp. 7-10, March 25, 1982; t.s.n., pp. 3-6, August 10, 1983.) xxx xxx xxx In the case of petitioner's other woodwork products such as barometer cases, knife racks, church furniture, school furniture, knock down chairs, etc., petitioner's above-mentioned witnesses testified that these were manufactured without previous orders. Samples were displayed, and if in stock, were available for immediate sale to local and foreign customers. Such testimony was not contradicted by respondent (petitioner herein). And in all the purchase orders presented as exhibits, whether from foreign or local buyers, reference was made to the model number of the product being ordered or to the sample submitted by petitioner. Respondent's examiners, in their memorandum to the Commissioner of Internal Revenue, stated that petitioner manufactured only upon previous orders from customers and "only in accordance with the latter's own design, model number, color, etc." (Exh. '1', p. 27, BIR records.) Their bare statement that the model numbers and designs were the customers' own, unaccompanied by adequate evidence, is difficult to believe. It ignores commonly accepted and recognized business practices that it is not the customer but the manufacturer who furnishes the samples or models from which the customers select when placing their orders, The evidence adduced by petitioner to

prove that the model numbers and designs were its own is more convincing [CTA decision, pp. 6-8.] (Emphasis supplied) xxx xxx xxx This Court finds no reason to disagree with the Tax Court's finding of fact. It has been consistently held that while the decisions of the Court of Tax Appeals are appealable to the Supreme Court, the former's finding of fact are entitled to the highest respect. The factual findings can only be disturbed on the part of the tax court [Collector of Intern. al Revenue v. Henderson, L-12954, February 28, 1961, 1 SCRA 649; Aznar v. Court of Tax Appeals, L-20569, Aug. 23, 1974, 58 SCRA 519; Raymundo v. de Joya, L-27733, Dec. 3, 1980, 101 SCRA 495; Industrial Textiles Manufacturing Co. of the Phils. , Inc. v. Commissioner of Internal Revenue, L-27718 and L-27768, May 27,1985,136 SCRA 549.] (b) Neither can Article 1467 of the New Civil Code help petitioner's cause. Article 1467 states: A contract for the delivery at a certain price of an article Which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. Petitioner alleged that what exists prior to any order is but the sample model only, nothing more, nothing less and the ordered quantity would never have come into existence but for the particular order as represented by the sample or model [Brief for Petitioner, pp. 9-101.] Petitioner wants to impress upon this Court that under Article 1467, the true test of whether or not the contract is a piece of work (and thus classifying private respondent as a contractor) or a contract of sale (which would classify private respondent as a manufacturer) is the mere existence of the product at the time of the perfection of the contract such that if the thing already exists, the contract is of sale, if not, it is work. This is not the test followed in this jurisdiction. As can be clearly seen from the wordings of Art. 1467, what determines whether the contract is one of work or of sale is whether the thing has been manufactured specially for

the customer and upon his special order." Thus, if the thing is specially done at the order of another, this is a contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the general market in the ordinary course of one's business, it is a b contract of sale. Jurisprudence has followed this criterion. As held in Commissioner of Internal Revenue v. Engineering Equipment and Supply Co. (L-27044 and L-27452, June 30, 1975, 64 SCRA 590, 597), "the distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given." (Emphasis supplied.) And in a BIR ruling, which as per Sec. 326 (now Sec. 277) of the Tax Court the Commissioner has the power to make and which, as per settled jurisprudence is entitled to the greatest weight as an administrative view [National Federation of Sugar Workers (NFSW) v. Ovejera, G.R. No. 59743, May 31, 1982, 114 SCRA 354, 391; Sierra Madre Trust v. Hon. Sec. of Agriculture and Natural Resources, Nos. 32370 and 32767, April 20, 1983,121 SCRA 384; Espanol v. Chairman and Members of the Board of Administrators, Phil. Veterans Administration, L-44616, June 29, 1985, 137 SCRA 3141, "one who has ready for the sale to the general public finished furniture is a manufacturer, and the mere fact that he did not have on hand a particular piece or pieces of furniture ordered does not make him a contractor only" (BIR Ruling No. 33-1, series of 1960). Likewise, xxx xxx xxx When the vendor enters into a contract for the delivery of an article which in the ordinary course of his business he manufactures or procures for the general market at a price certain (Art. 1458) such contract is one of sale even if at the time of contracting he may not have such article on hand. Such articles fall within the meaning of "future goods" mentioned in Art. 1462, par. 1. [5 Padilla, Civil Law: Civil Code Annotated 139 (1974) xxx xxx xxx

These considerations were what precisely moved the respondent Court of Tax Appeals to rule that 'the fact that [private respondent] kept models of its products... indicate that these products were for sale to the general public and not for special orders,' citing Celestino Co and Co. v. Collector of Internal Revenue [99 Phil, 841 (1956)]. (CTA Decision, pp. 8-9.) Petitioner alleges that the error of the respondent Tax Court was due to the 'heavy albeit misplaced and indiscriminate reliance on the case of Celestino Co and Co. v. Collector of Internal Revenue [99 Phil. 841, 842 (1956)] which is not a case in point' 1 Brief for Petitioner, pp. 14-15). The Commissioner of Internal Revenue made capital of the difference between the kinds of business establishments involved a FACTORY in the Celestino Co case and a CARPENTRY SHOP in this case (Brief for Petitioner, pp. 14-18). Petitioner seems to have missed the whole point in the former case. True, the former case did mention the fact of the business concern being a FACTORY, Thus: xxx xxx xxx ... I cannot believe that petitioner company would take, as in fact it has taken, all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the bold print "Oriental Sash Factory (Celestino Co and Company, Prop.) 926 Raon St., Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes furniture, etc. used season dried and kiln-dried lumber, of the best quality workmanship" solely for the purpose of supplying the need for doors, windows and sash of its special and limited customers. One will note that petitioner has chosen for its trade name and has offered itself to the public as a FACTORY, which means it is out to do business in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors and windows of special design only in particular cases but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home. [Emphasis supplied.] xxx xxx xxx

However, these findings were merely attendant facts to show what the Court was really driving at the habitualityof the production of the goods involved for the general public. In the instant case, it may be that what is involved is a CARPENTRY SHOP. But, in the same vein, there are also attendant facts herein to show habituality of the production for the general public. In this wise, it is noteworthy to again cite the findings of fact of the respondent Tax Court: xxx xxx xxx Petitioner [private respondent herein] claims, and the records bear petitioner out, that it had a ready stock of its shop products for sale to its foreign and local buyers. As a matter of fact, the purchase orders from its foreign buyers showed that they ordered by referring to the models designed by petitioner. Even purchases by local buyers for television cabinets... were by orders for existing models. ... With regard to the television cabinets, petitioner presented three witnesses... who testified that samples of television cabinets were designed and made by petitioner, from which models the television companies ... might choose, then specified whatever innovations they desired. If found to be saleable, some television cabinets were manufactured for display and sold to the general public. xxx xxx xxx In the case of petitioner's other woodwork products... these were manufactured without previous orders. Samples were displayed, and if in stock, were available for immediate sale to local and foreign customers. (CTA decision, pp. 6-8.1 [Emphasis supplied.] (c) The private respondent not being a "contractor" as defined by the Tax Code or of the New Civil Code, is it a 'manufacturer' as countered by the carpentry shop?

Sec. 187 (x) [now Sec. 157 (x)] of the Tax Code defines a manufacturer' as follows: "Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such manner as to prepare it for a special use or uses to which it could not have been in its original condition, or who by any such process alters the quality or any such raw material or manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or different kinds and in such manner that the finished product of such process or manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products in their original condition would not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption. It is a basic rule in statutory construction that when the language of the law is clear and unequivocal, the law must be taken to mean exactly what it says [Banawa et al. v. Mirano et al., L-24750, May 16, 1980, 97 SCRA 517, 533]. The term "manufacturer" had been considered in its ordinary and general usage. The term has been construed broadly to include such processes as buying and converting duck eggs to salted eggs ('balut") [Ngo Shiek v. Collector of Internal Revenue, 100 Phil. 60 (1956)1; the processing of unhusked kapok into clean kapok fiber [Oriental Kapok Industries v. Commissioner of Internal Revenue, L-17837, Jan. 31, 1963, 7 SCRA 132]; or making charcoal out of firewood Bermejo v. Collector of Internal Revenue, 87 Phil. 96 (1950)]. 2. As the Court of Tax Appeals did not err in holding that private respondent is a "manufacturer," then private respondent is entitled to the

tax exemption under See. 202 (d) and (e) mow Sec. 167 (d) and (e)] of the Tax Code which states: Sec. 202. Articles not subject to percentage tax on sales. The following shall be exempt from the percentage taxes imposed in Sections 194, 195, 196, 197, 198, 199, and 201: xxx xxx xxx (d) Articles shipped or exported by the manufacturer or producer, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the articles so exported. (e) Articles sold by "registered export producers" to (1) other" registered export producers" (2) "registered export traders' or (3) foreign tourists or travelers, which are considered as "export sales." The law is clear on this point. It is conceded that as a rule, as argued by petitioner, any claim for tax exemption from tax statutes is strictly construed against the taxpayer and it is contingent upon private respondent as taxpayer to establish a clear right to tax exemption [Brief for Petitioners, p. 181. Tax exemptions are strictly construed against the grantee and generally in favor of the taxing authority [City of Baguio v. Busuego, L29772, Sept. 18, 1980, 100 SCRA 1161; they are looked upon with disfavor [Western Minolco Corp. v. Commissioner Internal Revenue, G.R. No. 61632, Aug. 16,1983,124 1211. They are held strictly against the taxpayer and if expressly mentioned in the law, must at least be within its purview by clear legislative intent [Commissioner of Customs v. Phil., Acetylene Co., L22443, May 29, 1971, 39 SCRA 70, Light and Power Co. v. Commissioner of Customs, G.R. L-28739 and L-28902, March 29, 1972, 44 SCRA 122]. Conversely therefore, if there is an express mention or if the taxpayer falls within the purview of the exemption by clear legislative intent, then the rule on strict construction will not apply. In the present case the respondent Tax Court did not err in classifying private respondent as a "manufacturer". Clearly, the 'latter falls with the term 'manufacturer' mentioned in Art. 202 (d) and (e) of the Tax Code. As the only question raised by petitioner in relation to this tax exemption claim by private respondent is the classification of the latter as a manufacturer, this Court affirms the holding

of respondent Tax Court that private respondent is entitled to the percentage tax exemption on its export sales. There is nothing illegal in taking advantage of tax exemptions. When the private respondent was still exporting less and producing locally more, the petitioner did not question its classification as a manufacturer. But when in 1977 the private respondent produced locally less and exported more, petitioner did a turnabout and imposed the contractor's tax. By classifying the private respondent as a contractor, petitioner would likewise take away the tax exemptions granted under Sec. 202 for manufacturers. Petitioner's action finds no support in the applicable law. WHEREFORE, the Court hereby DENIES the Petition for lack of merit and AFFIRMS the Court of Tax Appeals decision in CTA Case No. 3357. SO ORDERED. Fernan (Chairman), Gutierrez, Jr., Feliciano and Bidin, concur.

Dignos vs. Court of Appeals, and Jabil 158 SCRA 378 February 1988 FACTS: In July 1965, herein petitioners Silvestre T. Dignos and Isabela Lumungsod de Dignos (spouses Dignos) sold their parcel of land in Opon, LapuLapu to herein private respondent Antonio Jabil for the sum of P28,000 payable for two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of P12,000 and the next installment of P4,000 to be paid in September 1965. In November 1965, the spouses Dignos sold the same parcel of land for P35,000 to defendants Luciano Cabigas and Jovita L. de Cabigas (spouses Cabigas) who were then US citizens, and executed in their favor an Absolute Deed of Sale duly registered in the Office of the Register of Deeds. Upon discovery of the 2nd sale of the subject land, Jabil filed the case at bar in the CFI of Cebu which rendered its Decision in August 1975 declaring the 2nd sale to the spouses Cabigas null and void ab initio and the 1st sale to Jabil not rescinded. The CFI of Cebu also ordered Jabil to pay the remaining P16,000 to the spouses Dignos and to reimburse the spouses Cabigas a reasonable amount corresponding the expenses in the construction of hollow block fences in the said parcel of land. The spouses Dignos were also ordered to return the P35,000 to the spouses Cabigas. Both Jabil and the spouses Dignos appealed to the Court of Appeals, which affirmed in July 1981 the CFI of Cebus Decision except for the part of Jabil paying the expenses of the spouses Cabigas for building a fence. The spouses Dignos contested that the contract between them and Jabil was merely a contract to sell and not a deed of sale.

ISSUE: Is the contract between the parties a contract of sale or a contract to sell? COURT RULING: The Supreme Court affirmed the Decision of the Court of Appeals saying stated that all the elements of a valid contract of sale are present in the document and that the spouses Dignos had no right to sell the land in question because an actual delivery of its possession has already been made in favor of Jabil as early as March 1965. It was also found that the spouses Dignos never notified Jabil by notarial act that they were rescinding the contract, and neither did they file a suit in court to rescind the sale. There is no showing that Jabil properly authorized a certain Cipriano Amistad to tell petitioners that he was already waiving his rights to the land in question. -----------------------------------------------------------------------------------------------------------------------------------------------FACTS: The spouses Silvestre and Isabel Dignos were. owners of a parcel of land in Opon, Lapu-Lapu City. OnJune 7, 1965, appellants, herein petitioners Dignos spouses sold the said parcel of land to respondentAtilano J. Jabil for the sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of PI 2,000.00, which was paid andacknowledged by the vendors in the deed of sale executed in favor of plaintiff-appellant, and the nextinstallment in the sum of P4,000.00 to be paid on or before September 15, 1965.On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, LucianoCabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale was executed by the Dignos spouses in favor of the Cabigas spouses, and which wasregistered in the Office of the Register of Deeds pursuant to the provisions

of Act No. 3344.As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of theland, and as plaintiff- appellant discovered the second sale made by defendants-appellants to the Cabigasspouses, plaintiff-appellant brought the present suit.

ISSUE: Whether or not there was an absolute contract of sale.2. Whether or not the contract of sale was already rescinded when the Digros spouses sold the land toCabigas

HELD: Yes. That a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale"where nowhere in the contract in question is a proviso or stipulation to the effect that title to theproperty sold is reserved in the vendor until full payment of the purchase price, nor is there astipulation giving the vendor the right to unilaterally rescind the contract the moment the vendeefails to pay within a fixed period.A careful examination of the contract shows that there is no such stipulation reserving the title of the property on the vendors nor does it give them the right to unilaterally rescind the contract uponnon-payment of the balance thereof within a fixed period.On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, arepresent, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3)price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that"The ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." While it may be conceded that there was no constructive delivery of the land soldin the case at bar, as subject Deed of Sale is a private instrument, it is beyond question that therewas actual delivery thereof. As found by the

trial court, the Dignos spouses delivered the possessionof the land in question to Jabil as early as March 27,1965 so that the latter constructed thereonSally's Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resorton January 15, J 966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were admittedby petitioner spouses.2. No. The contract of sale being absolute in nature is governed by Article 1592 of the Civil Code. It isundisputed that petitioners never notified private respondents Jabil by notarial act that they wererescinding the contract, and neither did they file a suit in court to rescind the sale. There is noshowing that Amistad was properly authorized by Jabil to make such extra-judicial rescission for thelatter who, on the contrary, vigorously denied having sent Amistad to tell petitioners that he wasalready waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is requiredthat acts and contracts which have for their object extinguishment of real rights over immovableproperty must appear in a public document.Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money onthe stipulated date of payment on September 15,1965 and was able to raise the necessary amountonly by mid-October 1965. It has been ruled, however, that where time is not of the essence of theagreement, a slight delay on the part of one party in the performance of his obligation is not asufficient ground for the rescission of the agreement. Considering that private respondent has only abalance of P4,OOO.00 and was delayed in payment only for one month, equity and justice mandateas in the aforecited case that Jabil be given an additional period within which to complete paymentof the purchase price.